Possible cut in U.S. F-35 orders ‘key’ concern for aerospace industry

OTTAWA – There’s been hand-wringing within the federal bureaucracy about whether Canadian aerospace companies will receive all the contracts expected from the oft-maligned F-35 program, an internal assessment shows.

The concern is that the project will face substantial cuts in the U.S., which would affect suppliers world-wide, including 72 Canadian companies that have received US$438 million in contracts to date.

A newly released analysis from last summer calls the potentially fewer orders of the stealth fighter an important concern.

The U.S. is facing what may be massive defence cuts if lawmakers in Washington cannot agree on deficit-fighting plans, and the long overdue F-35 program is widely acknowledged as a huge target.

“The ultimate value of Canadian contracts is directly related to the number of aircraft built, which is currently estimated at 3,100, and continues to be a key risk to Canadian Industrial Participation outcomes,” said an Aug. 13, 2012, assessment penned for Industry Minister Christian Paradis.

Officials met twice in the latter half of 2012 with officials at Lockheed Martin, the maker of the stealth fighter, and Pratt and Whitney, which builds the jet’s engines, to “discuss their recently received (industrial participation) numbers in greater detail.”

Two federal officials, who spoke on background, said the increased activity around benefits could have been a reflection of more oversight in the aftermath of last spring’s scathing auditor general report, which accused National Defence and Public Works Canada of hiding the true cost of the multi-role fighter and not following proper procedures.

The report, by a senior associate deputy minister at Industry, said the 3,100 figure remained “valid” and if it holds, and existing contracts are renewed, it could generate up to $7.7 billion in work for Canadian companies.

Other contracts, including sustainment work, could push that figure to $9.3 billion over 50 years.

But all of that is dependent on Canada’s participation in the program, a senior executive at Lockheed Martin acknowledged Thursday in an interview with The Canadian Press.

Stephen O’Bryan, vice president of F-35 business development for the giant U.S. defence contractor, said his company has been there to support Canada as the Harper government considers whether to call for tenders on the replacement of the existing CF-18 fleet.

Federal ministers said in December they had “hit the reset” button on the program and ordered, among other things, a market analysis of what aircraft other than F-35 might fill that role.

It is one step below putting the contract out for tender, and came two-and-a-half-years after the Harper government said it had selected the F-35 as the “only” aircraft to meet the air force’s needs.

O’Bryan said Canadian industry has already benefited, in dollar terms, but also by being part of cutting-edge manufacturing know-how.

“You’re building a competitive aerospace industry, instead of one based on hand-outs or short-term gains,” he said.

Existing contracts would be honoured, should Canada decide to pull out, or even select another aircraft, O’Bryan said.

“We as Lockheed Martin would honour any contract that has been signed, as far as speculating beyond that (it) isn’t really helpful,” he said.

“We would continue with the contractors and we would never terminate a signed and bonded contract with any our suppliers. These are relationships we’ve had with them for years.”

But the existing contracts would have to be renewed at some point, and there would be other opportunities once the stealth fighter comes to service.

“It would be very hard for me to speculate on the effects of what it would be on the Canadian industrial plan, but as you’d expect F-35 work would go to countries that are procuring the F-35,” said O’Bryan.

Much of the debate in Canada has centred on the enormous price tag and sustainment costs for the advanced multi-role fighter.

But O’Bryan said the company has that under control and has been driving down the sticker price for the U.S. military to the point where he predicted each plane would cost $67 million by the time production ramps up in 2020, the year Canada expects to buy most of its CF-18 replacements.